September 2020 Manufacturing ISM® Report On Business® Holds Steady

september

The Manufacturing economy has pulled off something of a V-shaped recovery, even as coronavirus concerns continue to hit home here in the U.S. After a dramatic drop and contraction across the board earlier in the year, manufacturing’s key benchmarks shot back up late in the summer. Now, they appear to have plateaued in a positive place, according to the September Manufacturing ISM® Report On Business®. The question is, will they stay that way?

Manufacturing by the numbers

The overall PMI for September was 55.4, consistent with August’s 56.0 measure. On the surface, this is a great indicator that manufacturing is capable of maintaining the gains it realized after the staggering drop due to COVID-19 earlier in the year.

Delving deeper, several key indicators are showing signs of volatility. New orders fell sharply, losing 7.4 points in September, followed by a 2.3-point dip in production. These numbers are much less comforting, indicating what might’ve been a rush to get ahead of future disruptions at the end of the third quarter. This rubber-band effect is something to monitor in the months to come.

There also are several metrics moving the needle that signal strong positives for manufacturing in September’s report. Employment gained 3.2 points, bringing it closer to expansion territory and far removed from the alarming 27.5% registered in April. Prices, exports, and inventories also are up, signaling strength in domestic supply chains.

Supply chains are the deciding factor

Speaking of supply chains, they appear to be the number one cause for concern in manufacturing right now. Much of the disruption earlier in 2020 was the result of global supply chain collapse caused by coronavirus. Now, as suppliers find their footing, the restructure of supply chains appears to be the driving force behind manufacturing’s recovery. But there are still lingering fears that we’re not out of the woods yet, according to industry voices:

“Business is booming, and the supply chain has been caught off guard. We are working closely with our suppliers to ensure supply and try to control costs. The resin industry, along with plastics, is driving cost increases and scarce availability.” (Transportation Equipment)

“Raw material shortages, especially of hardwood logs, are starting to impact overall supply. Domestic market demand is fragmented but remains sound. Export demand, especially to China, is robust.” (Wood Products)

Government officials are echoing these fears, as well. In late September, President Trump signed an Executive Order on Addressing the Threat to the Domestic Supply Chain from Reliance on Critical Minerals from Foreign Adversaries. The executive order identifies critical materials for U.S. production and recognizes the need to establish domestic supply chains that reduce dependence on other countries. It’s not just a move to shore up supply chains — it’s a move toward reshoring as a whole.

The fourth quarter is critical

Entering the fourth quarter, manufacturing stands on pivotal ground. There are other factors curtailing the full recovery of supply chains and a divisive election on the horizon. September’s consistency is a much-needed sign of stability for industry. If manufacturing can carry this stability and expansionism into 2021, fueled by reshoring and supply chain restructuring, domestic manufacturing could enter the 2020s in strong shape, despite a rocky start.

As manufacturing continues to hold steady, it’s important to start thinking long-term, into the end of the year and beyond. If your equipment needs service, you can always count on the professionals at Global Electronic Services. Contact us for all your industrial electronic, servo motor, AC and DC motor, hydraulic, and pneumatic needs — and don’t forget to like and follow us on Facebook!
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